The year of managed inflationary pressure?
Mixed and murky best fits description of Malawi’s economy in 2019.
The year was characterised by volatility in some economic variables including public debt management, fiscal deficit, investment inflow and trade gap, but not entirely with other fundamentals such as inflation.
For a greater part of 2019, inflation remained within a single digit band, in fact since August 2017.
But it crawled back to a double digit band, seen at 10.4 percent in November 2019.
Of course this was not surprising. Malawi’s headline inflation continued on an upward spiral in the last half of the year, after taking a u-turn in July to surge to nine percent, as escalating food and nonfood prices began to bite.
Prices of Maize, Malawi’s staple crop, traditionally impacts the country’s economy given its skewed influence in determining inflation rates, has been on the rise.
Maize constitutes 45.2 percent in the Consumer Price Index, an aggregate basket of goods and services for computing inflation.
Amid assurance that the country had a maize surplus this year, prices remained high, now trading between K15,000 to K19,000 in some parts of the country from K9,000 early July.
Malawi has the highest level of maize price volatility compared to other sub-Saharan Africa countries, according to a recent study by the International Food Policy Research Institute.
The development means that the abundance or absence of maize determines the direction in which Malawi’s inflation would swing, all things being equal.
National Statistical Office figures show that food inflation rose to 17.2 percent in November 2019 from 16 percent in October 2019 while Non Food Inflation rose to 4.7 percent from 4.3 percent.
During the January to November 2019 period, headline inflation averaged 9.18 percent compared to 9.15 percent during the same period last year.
The central bank projects the headline inflation to average 9.2 percent in 2019. It also set an ambitious target of five percent inflation rate by the first quarter of 2021.
Notwithstanding stability in the non-food inflation, the rising in food inflation poses a threat to the headline inflation and points to a possible rise in bank rates. This could have a bearing on other key microeconomic fundamentals.
But the Reserve Bank of Malawi (RBM) is playing down the fears, rating the rise in inflation as temporal.
RBM Spokesperson, Mbane Ngwira, premised the optimism on stability in non-food inflation in the past months.
“Encouragingly, the spillover effects from food inflation to non-food inflation have been mute, reflecting the credibility of monetary policy.
“The rise in food inflation is temporary and food inflation should come down rapidly next year, due to the favourable base effects,” Ngwirwa said.
Economic expert, Edward Chilima, however said the November inflation figure reflects the situation on the ground.
He warns that headline inflation may rise further to 11.5 percent in the short term.
“The figures are a true reflection of what is happening on the ground. Remember inflation is more weighted on food [maize] and maize prices are going up, it is likely the rate will increase further,” Chilima said.
In a separate interview, Economics Association of Malawi Acting Executive Director, Kettie Nyasulu, said apart from the continued rise in average maize price, the rise in headline could be attributed to an increase in fuel prices in November.
“It could be a reaction to this increase as suppliers incorporated this cost into their goods and services.
“So, based on such fundamentals, inflation figures would not necessarily be doctored. We are likely to close around the same figures as these cost adjustments stabilise,” Nyasulu said.
Last year, annual headline inflation rate was seen at 9.2 percent, below the RBM’s projected target of 9.3 percent.
Most may agree that inflation has behaved significantly better than what was expected before 2019 began. But more still needs to be done.
As former International Monetary Fund country representative said, there is no silver bullet in inflation fight.
The country just needs to be persistent and vigilant and have a credible framework of monetary policy.
In fact, there is no better time for the country to consider diversifying her food options if we are to be bailed out of the seasonal volatility of inflation.